This Item 2 contains "forward-looking" statements. See "Forward-Looking Statements" at the beginning of Part I of this Quarterly Report on Form 10-Q. In this document, the words "we," "our," "ours" and "us" refer only to
HF Sinclair Corporation("HF Sinclair") and its consolidated subsidiaries or to HF Sinclairor an individual subsidiary and not to any other person with certain exceptions. Generally, the words "we," "our," "ours" and "us" include Holly Energy Partners, L.P. ("HEP") and its subsidiaries as consolidated subsidiaries of HF Sinclair, unless when used in disclosures of transactions or obligations between HEP and HF Sinclairor its other subsidiaries. This document contains certain disclosures of agreements that are specific to HEP and its consolidated subsidiaries and do not necessarily represent obligations of HF Sinclair. When used in descriptions of agreements and transactions, "HEP" refers to HEP and its consolidated subsidiaries. References herein to HF Sinclair"we," "our," "ours," and "us" with respect to time periods prior to March 14, 2022refer to HollyFrontierand its consolidated subsidiaries and do not include the Target Company, STC or their respective consolidated subsidiaries (collectively, the "Acquired Sinclair Businesses"). References herein to HF Sinclair"we," "our," "ours," and "us" with respect to time periods from and after March 14, 2022include the operations of the Acquired Sinclair Businesses. Unless otherwise specified, the financial statements included herein include financial information for HF Sinclair, which for the time period from March 14, 2022to March 31, 2022includes the combined business operations of HollyFrontierand the Acquired Sinclair Businesses.
We are an independent energy company that produces and markets high-value light products such as gasoline, diesel fuel, jet fuel, renewable diesel and other specialty products. We own and operate refineries located in
El Dorado, Kansas(the " El Dorado Refinery"); Tulsa, Oklahoma, which comprise two production facilities, the Tulsa West and Tulsa East facilities (collectively, the " TulsaRefineries"); Anacortes, Washington(the " Puget Sound Refinery"); Artesia, New Mexico, which operates in conjunction with crude oil distillation, vacuum distillation and other facilities situated 65 miles away in Lovington, New Mexico(collectively, the " Navajo Refinery"); Woods Cross, Utah(the " Woods Cross Refinery"); Sinclair, Wyoming(the " Sinclair Refinery") and Casper, Wyoming(the " Casper Refinery"). We market our refined products principally in the Southwest United States, the Rocky Mountainsextending into the Pacific Northwestand in other neighboring Plains states. We supply high-quality fuels to more than 1,300 Sinclairbranded stations and license the use of the Sinclair brand at more than 300 additional locations throughout the country. In addition, our subsidiaries produce and market base oils and other specialized lubricants in the United States, Canadaand the Netherlands, and export products to more than 80 countries. Through our subsidiaries, we produce renewable diesel at two of our facilities in Wyoming. We also own a 47% limited partner interest and a non-economic general partner interest in HEP, a master limited partnership that provides petroleum product and crude oil transportation, terminalling, storage and throughput services to the petroleum industry, including HF Sinclairsubsidiaries. On March 14, 2022(the "Closing Date"), HollyFrontier Corporation("HollyFrontier") and Holly Energy Partners, L.P. ("HEP") announced the establishment of HF Sinclair Corporation, a Delawarecorporation ("HF Sinclair"), as the new parent holding company of HollyFrontierand HEP and their subsidiaries, and the completion of their respective acquisitions of Sinclair Oil Corporation(now known as Sinclair Oil LLC, "Sinclair Oil") and Sinclair Transportation Company LLC("STC") from The Sinclair Companies(now known as REH Companyand referred to herein as "Sinclair HoldCo"). On the Closing Date, pursuant to that certain Business Combination Agreement, dated as of August 2, 2021(as amended on March 14, 2022, the "Business Combination Agreement"), by and among HollyFrontier, HF Sinclair, Hippo Merger Sub, Inc., a wholly owned subsidiary of HF Sinclair("Parent Merger Sub"), Sinclair HoldCo, and Hippo Holding LLC, a wholly owned subsidiary of Sinclair HoldCo (the " Target Company"), HF Sinclaircompleted its previously announced acquisition of the Target Companyby effecting (a) a holding company merger in accordance with Section 251(g) of the Delaware General Corporation Law whereby HollyFrontiermerged with and into Parent Merger Sub, with HollyFrontiersurviving such merger as a direct wholly owned subsidiary of HF Sinclair(the "HFC Merger") and (b) immediately following the HFC Merger, a contribution whereby Sinclair HoldCo contributed all of the equity interests of the Target Companyto HF Sinclairin exchange for shares of HF Sinclair, resulting in the Target Companybecoming a direct wholly owned subsidiary of HF Sinclair(the "HFC Transactions"). At the effective time of the HFC Merger, HollyFrontierbecame a wholly owned subsidiary of HF Sinclair, and all of HollyFrontier'soutstanding shares were automatically converted into equivalent corresponding shares of HF Sinclair. Pursuant to the HFC Merger, HF Sinclairbecame the successor issuer to HollyFrontierpursuant to Rule 12g-3(a) under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and replaced HollyFrontieras the public company trading on the New York Stock Exchange("NYSE") under the symbol "DINO." 38 -------------------------------------------------------------------------------- Table of Content In connection with the closing of the HFC Transactions, HF Sinclairissued 60,230,036 shares of HF Sinclaircommon stock to Sinclair HoldCo, representing 27% of the pro forma equity of HF Sinclairwith a value of approximately $2,149 millionbased on HollyFrontier'sfully diluted shares of common stock outstanding and closing stock price on March 11, 2022. On the Closing Date, Sinclair HoldCo made a $90.2 millioncash payment to HF Sinclairrelated to estimated working capital adjustments pursuant to the Business Combination Agreement, which reduced the aggregate transaction value to approximately $2,059 million. Of the 60,230,036 shares of HF Sinclaircommon stock, 2,570,000 shares are currently held in escrow to secure Sinclair HoldCo's obligations under Section 6.22 of the Business Combination Agreement. Additionally, on the Closing Date, and immediately prior to the consummation of the HFC Transactions, HEP completed its acquisition of STC, Sinclair HoldCo's integrated crude and refined products midstream business, and issued 21,000,000 common limited partner units and paid cash consideration of $321.4 million, inclusive of working capital adjustments, to Sinclair HoldCo in exchange for all the outstanding equity interests of STC (the "HEP Transaction" and together with the HFC Transactions, the "Sinclair Transactions"). Of these 21,000,000 common limited partner units, 5,290,000 units are currently held in escrow to secure Sinclair HoldCo's RINs credit obligations to HF Sinclairunder Section 6.22 of the Business Combination Agreement. HF Sinclair, and not HEP, would be entitled to the HEP common units held in escrow in the event of Sinclair HoldCo's breach of its RINs credit obligations under the Business Combination Agreement. Under the terms of the Business Combination Agreement, HF Sinclairacquired Sinclair HoldCo's refining, branded marketing, renewables, and midstream businesses. The branded marketing business supplies high-quality fuels to more than 1,300 Sinclairbranded stations and licenses the use of the Sinclair brand at more than 300 additional locations throughout the United States. The renewables business includes the operation of a renewable diesel unit located in Sinclair, Wyoming. The refining business includes two Rocky Mountains-based refineries located in Casper, Wyomingand Sinclair, Wyoming. Under the terms of the Contribution Agreement, HEP acquired STC, Sinclair HoldCo's integrated crude and refined products pipelines and terminal assets, including approximately 1,200 miles of integrated crude and refined product pipeline supporting the Sinclairrefineries and third parties, eight product terminals and two crude terminals with approximately 4.5 million barrels of operated storage. In addition, HEP acquired STC's interests in three pipeline joint ventures for crude gathering and product offtake including: Saddle Butte Pipeline III, LLC(25.06% non-operated interest); Pioneer Pipeline (49.995% non-operated interest); and UNEV Pipeline, LLC("UNEV") (the 25% non-operated interest not already owned by HEP, resulting in UNEV becoming a wholly owned subsidiary of HEP). The addition of Sinclair Oil and STC to the HollyFrontierbusiness created a combined company with increased scale and ability to diversify and is expected to drive growth through the expanded refining and renewables business. In addition, the HFC Transactions added an integrated branded wholesale distribution network to our business. HollyFrontier'ssenior management team at the Closing Date will continue to operate the combined company. Pursuant to that certain stockholders agreement (the "Stockholders Agreement") by and among HF Sinclair, Sinclair HoldCo and the stockholders of Sinclair HoldCo (together with Sinclair HoldCo and each of their permitted transferees, the "Sinclair Parties"), Sinclair HoldCo was granted the right to nominate, and has nominated, two directors to our Board of Directors at the Closing Date. The Sinclair HoldCo stockholders also agreed to certain customary lock up, voting and standstill restrictions, as well as customary registration rights, for the HF Sinclaircommon stock issued to the stockholders of Sinclair HoldCo. HF Sinclairis headquartered in Dallas, Texas, with combined business offices in Salt Lake City, Utah.
See Note 2 “Acquisitions” and Note 3 “
May 4, 2021, HollyFrontier Puget Sound Refining LLC, a wholly owned subsidiary of HollyFrontier, entered into a sale and purchase agreement with Equilon Enterprises LLCd/b/a Shell Oil Products US("Shell") to acquire Shell's Puget Sound refineryand related assets, including the on-site cogeneration facility and related logistics assets. The acquisition closed on November 1, 2021. For the three months ended March 31, 2022, net income attributable to HF Sinclairstockholders was $160.0 millioncompared to $148.2 millionfor the three months ended March 31, 2021. Gross refining margin per produced barrel sold in our Refining segment increased 59% for the three months ended March 31, 2022over the same period of 2021. Pursuant to the 2007 Energy Independence and Security Act, the Environmental Protection Agency(" EPA") promulgated the Renewable Fuel Standard ("RFS") regulations, which increased the volume of renewable fuels mandated to be blended into the nation's fuel supply. The regulations, in part, require refiners to add annually increasing amounts of "renewable fuels" to their petroleum products or purchase credits, known as renewable identification numbers ("RINs"), in lieu of such blending. Compliance with RFS regulations significantly increases our cost of products sold, with RINs costs totaling $196.3 millionfor the three months ended March 31, 2022. At March 31, 2022, our open RINs credit obligations were $144.7 million. See Note 2 "Acquisitions" in the Notes to Consolidated Financial Statements for additional information on RINs credit obligations assumed in the Sinclair Transactions. 39
Impact of COVID-19 on Our Business The COVID-19 pandemic caused a decline in
U.S.and global economic activity starting in the first quarter of 2020. This decrease reduced both volumes and unit margins across our businesses, resulting in lower gross margins and earnings. Global demand for transportation fuels, lubricants and the transportation and terminal services we provide began to improve late in the second quarter of 2020 and has returned to pre-pandemic levels. The extent to which our future results are affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the effects of any new variant strains of the underlying virus, additional actions by businesses and governments in response to the pandemic and the speed and effectiveness of responses to combat the virus. The COVID-19 pandemic, and the volatile regional and global economic conditions stemming from it, could also exacerbate the risk factors identified in HollyFrontier'sForm 10-K under "Risk Factors" in Item 1A. The COVID-19 pandemic may also materially adversely affect our results in a manner that is either not currently known or that we do not currently consider to be a significant risk to our business.
Within our Refining segment, for the second quarter of 2022, we expect to run between 615,000 - 645,000 barrels per day of crude oil. This guidance reflects the strong underlying demand trends in our markets, the reduction of refined product supply driven by the global reaction to
Russia'sinvasion of Ukraineand a full quarter of contribution of the Sinclairand Casperrefineries. Within our Lubricants and Specialty Products segment, for the second quarter of 2022, we expect seasonal improvement in earnings in our Rack Forwardbusiness as well as continued strong performance in our Rack Backbusiness due to the reduction in base oil supply from Russia. Within our Renewables business, we expect to complete construction of the Artesiarenewable diesel unit and commence start up in the second quarter. The Sinclairand Cheyennerenewable diesel units and the Artesiapre-treatment unit are all on-line. We will continue to ramp up production across these assets and expect to generate modestly positive earnings in the quarter as we reach full production levels. We are suspending construction of the Sinclairpre-treatment unit until 2023 pending a review of project economics and potential other alternatives. In the second quarter of 2022, HEP expects to hold the quarterly distribution constant at $0.35per unit, or $1.40on an annualized basis. HEP remains committed to its distribution strategy focused on funding all capital expenditures and distributions within operating cash flow and maintaining distributable cash flow coverage of 1.3x or greater with the goal of reducing leverage to 3.0-3.5x. Our Board of Directors reinstated our regular quarterly dividend at an increased rate of $0.40per share, as compared to the first quarter of 2021 dividend of $0.35per share, effective with the dividend declared for the first quarter of 2022. Following the expected completion of our renewables capital projects in the second quarter of 2022, we intend to resume the repurchase of common stock under our existing $1.0 billionshare repurchase program. On March 27, 2020, the U.S.government passed the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), an approximately $2 trillionstimulus package that included various provisions intended to provide relief to individuals and businesses in the form of tax changes, loans and grants, among others. At this time, we have not sought relief in the form of loans or grants from the CARES Act; however, we have benefited from certain tax deferrals in the CARES Act and may benefit from other tax provisions if we meet the requirements to do so. We anticipate $83 millionin cash tax benefit in 2022 from the net operating loss carryback provisions under the CARES Act.
A more detailed discussion of our financial and operating results for the three months ended
Table of Content RESULTS OF OPERATIONS Financial Data Three Months Ended March 31, Change from 2021 2022 2021 Change Percent (In thousands, except per share data) Sales and other revenues
$ 7,458,750 $ 3,504,293 $ 3,954,457113 % Operating costs and expenses: Cost of products sold (exclusive of depreciation and amortization): Cost of products sold (exclusive of lower of cost or market inventory valuation adjustment) 6,502,012 2,960,305 3,541,707 120 Lower of cost or market inventory valuation adjustment (8,551) (200,037) 191,486 (96) 6,493,461 2,760,268 3,733,193 135 Operating expenses (exclusive of depreciation and amortization) 477,434 399,909 77,525 19 Selling, general and administrative expenses (exclusive of depreciation and amortization) 110,422 81,975 28,447 35 Depreciation and amortization 144,601 124,079 20,522 17 Total operating costs and expenses 7,225,918 3,366,231 3,859,687 115 Income from operations 232,832 138,062 94,770 69 Other income (expense): Earnings of equity method investments 3,626 1,763 1,863 106 Interest income 997 1,031 (34) (3) Interest expense (34,859) (38,386) 3,527 (9) Gain on tariff settlement - 51,500 (51,500) (100) Gain (loss) on foreign currency transactions 139 (1,317) 1,456 (111) Gain on sale of assets and other 3,895 1,890 2,005 106 (26,202) 16,481 (42,683) (259) Income before income taxes 206,630 154,543 52,087 34 Income tax expense (benefit) 21,329 (28,307) 49,636 (175) Net income 185,301 182,850 2,451 1 Less net income attributable to noncontrolling interest 25,327 34,633 (9,306) (27)
Net income attributable to
$ 148,217$ 11,757 8 % Earnings per share attributable to HF Sinclairstockholders: Basic $ 0.90 $ 0.90$ - - % Diluted $ 0.90 $ 0.90$ - - % Cash dividends declared per common share $ - $ 0.35$ (0.35) (100) % Average number of common shares outstanding: Basic 175,081 162,479 12,602 8 % Diluted 175,081 162,479 12,602 8 % Balance Sheet Data March 31, 2022 December 31, 2021 (Unaudited) (In thousands) Cash and cash equivalents $ 592,278$ 234,444 Working capital $ 2,627,703 $ 1,696,990Total assets $ 17,733,097 $ 12,916,613Long-term debt $ 3,374,701 $ 3,072,737Total equity $ 8,876,977 $ 6,294,46541
-------------------------------------------------------------------------------- Table of Content Other Financial Data
Three months completed
2022 2021 (In thousands) Net cash provided by operating activities
$ 461,036 $ 62,326Net cash used for investing activities $ (385,176) $ (147,064)Net cash provided by (used for) financing activities $ 281,386 $ (89,561)Capital expenditures $ 158,296 $ 149,961EBITDA (1) $ 359,766 $ 281,344(1)Earnings before interest, taxes, depreciation and amortization, which we refer to as "EBITDA," is calculated as net income (loss) attributable to HF Sinclairstockholders plus (i) interest expense, net of interest income, (ii) income tax provision, and (iii) depreciation and amortization. EBITDA is not a calculation provided for under GAAP; however, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis and as a basis for financial covenants. EBITDA presented above is reconciled to net income under "Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles" following Item 3 of Part I of this Form 10-Q. Segment Operating Data
Our operations are organized into five reportable segments, Refining, Renewable Energy, Marketing, Lubricants and Specialty Products, and HEP. See Note 15 “Segment Information” in the Notes to the Consolidated Financial Statements for additional information on our reportable segments.
Refine segment operational data
The disaggregation of our refining geographic operating data is presented in two regions, Mid-Continent and West, to best reflect the economic drivers of our refining operations. The Mid-Continent region is comprised of the
El Doradoand Tulsa Refineries. The West region is comprised of the Puget Sound, Navajo, Woods Cross, Sinclairand CasperRefineries. The Puget Sound Refinerywas acquired November 1, 2021, and thus is included for the period January 1, 2022to March 31, 2022. In addition, the refinery operations of the Sinclairand CasperRefineries are included for the period March 14, 2022(date of acquisition) through March 31, 2022. The following tables set forth information, including non-GAAP performance measures, about our consolidated refinery operations. The cost of products and refinery gross and net operating margins do not include the non-cash effects of lower of cost or market inventory valuation adjustments and depreciation and amortization. Reconciliations to amounts reported under GAAP are provided under "Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles" following Item 3 of Part I of this Form 10-Q. Three Months Ended March 31, 2022 (8) 2021 Mid-Continent RegionCrude charge (BPD) (1) 290,200 216,290 Refinery throughput (BPD) (2) 305,390 229,560 Sales of produced refined products (BPD) (3) 280,260 210,680 Refinery utilization (4) 111.6 % 83.2 % Average per produced barrel (5) Refinery gross margin $ 9.32 $ 6.45Refinery operating expenses (6) 6.02 9.91 Net operating margin $ 3.30 $ (3.46)Refinery operating expenses per throughput barrel (7) $ 5.53 $ 9.0942
Table of Content Three Months Ended March 31, 2022 (8) 2021
Mid-Continent RegionFeedstocks: Sweet crude oil 63 % 59 % Sour crude oil 14 % 13 % Heavy sour crude oil 18 % 22 % Other feedstocks and blends 5 % 6 % Total 100 % 100 % Sales of produced refined products: Gasolines 50 % 51 % Diesel fuels 33 % 34 % Jet fuels 7 % 5 % Fuel oil 1 % 1 % Asphalt 3 % 3 % Base oils 4 % 4 % LPG and other 2 % 2 % Total 100 % 100 % West Region Crude charge (BPD) (1) 234,880 131,880 Refinery throughput (BPD) (2) 259,340 144,600 Sales of produced refined products (BPD) (3) 241,910
Refinery utilization (4) 70.6 %
Average per produced barrel (5) Refinery gross margin
$ 16.61 $ 10.26Refinery operating expenses (6) 9.33
Net operating margin
Refinery operating expenses per throughput barrel (7)
$ 8.70 $ 8.07Feedstocks: Sweet crude oil 23 % 24 % Sour crude oil 55 % 59 % Heavy sour crude oil 7 % - % Black wax crude oil 6 % 8 % Other feedstocks and blends 9 % 9 % Total 100 % 100 % Sales of produced refined products: Gasolines 52 % 55 % Diesel fuels 27 % 36 % Jet fuels 6 % - % Fuel oil 10 % 2 % Asphalt 2 % 4 % LPG and other 3 % 3 % Total 100 % 100 % 43
Table of Content Three Months Ended March 31, 2022 (8) 2021 Consolidated Crude charge (BPD) (1) 525,080 348,170 Refinery throughput (BPD) (2) 564,730 374,160 Sales of produced refined products (BPD) (3) 522,170 354,940 Refinery utilization (4) 88.6 % 86.0 % Average per produced barrel (5) Refinery gross margin
$ 12.69 $ 8.00Refinery operating expenses (6) 7.55 9.17 Net operating margin $ 5.14 $ (1.17)Refinery operating expenses per throughput barrel (7) $ 6.98 $ 8.70Feedstocks: Sweet crude oil 45 % 45 % Sour crude oil 32 % 31 % Heavy sour crude oil 13 % 14 % Black wax crude oil 3 % 3 % Other feedstocks and blends 7 % 7 % Total 100 % 100 % Sales of produced refined products: Gasolines 51 % 54 % Diesel fuels 31 % 35 % Jet fuels 6 % 3 % Fuel oil 5 % 1 % Asphalt 2 % 3 % Base oils 2 % 2 % LPG and other 3 % 2 % Total 100 % 100 % (1)Crude charge represents the barrels per day of crude oil processed at our refineries. (2)Refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries. (3)Represents barrels sold of refined products produced at our refineries (including HFC Asphalt) and does not include volumes of refined products purchased for resale or volumes of excess crude oil sold. (4)Represents crude charge divided by total crude capacity (BPSD). As a result of our acquisition of the Puget Sound Refineryon November 1, 2021, and the Sinclairand CasperRefineries on March 14, 2022, our consolidated crude capacity increased from 405,000 BPSD at March 31, 2021to 669,000 BPSD at March 31, 2022. (5)Represents average amount per produced barrel sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under "Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles" following Item 3 of Part I of this Form 10-Q. (6)Represents total Refining segment operating expenses, exclusive of depreciation and amortization, divided by sales volumes of refined products produced at our refineries. (7)Represents total Refining segment operating expenses, exclusive of depreciation and amortization, divided by refinery throughput. (8)We acquired the Sinclairand CasperRefineries on March 14, 2022. Refining operating data for the three months ended March 31, 2022includes crude oil and feedstocks processed and refined products sold at our Sinclairand CasperRefineries for the period March 14, 2022through March 31, 2022only, averaged over the 90 days in the three months ended March 31, 2022. 44 -------------------------------------------------------------------------------- Table of Content Renewables Operating Data
The following table presents information about our renewable energy operations and includes our
Three Months Ended
Sales volumes (in thousand gallons)
Average per produced gallon (1) Renewables gross margin $
Renewables operating expenses (2) 5.48 Net operating margin $ (4.85)
(1)Represents average quantity per gallon product sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following item 3 in Part I of this Form 10-Q. (2) Represents the total operating expenses of the renewable energy sector, excluding depreciation, divided by the sales volumes of renewable diesel produced in our renewable diesel units.
Marketing operating data
The following table presents information about our marketing operations and includes our
Three Months Ended
March 31, 2022Marketing Number of branded sites 1,323 Sales volumes (in thousand gallons)
Margin per gallon of sales (1) $
(1)Represents average quantity per gallon sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following item 3 in Part I of this Form 10-Q.
Lubricants and Specialty Products Operational Data
The following table sets forth information about our lubricants and specialty products operations. Three Months Ended
March 31, 20222021
Lubricants and specialty products
Sales of produced refined products (BPD)
Sales of manufactured refined products:
Finished products 51 % 52 % Base oils 30 % 26 % Other 19 % 22 % Total 100 % 100 % 45
Table of Contents Additional financial data attributable to our Lubricants and Specialty Products segment is presented below.
Total Lubricants Rack Forward and Specialty Rack Back (1) (2) Eliminations (3) Products (In thousands) Three months ended
March 31, 2022Sales and other revenues $ 278,586 $ 687,947 $ (211,524) $ 755,009Cost of products sold $ 178,539 $ 537,562 $ (211,524) $ 504,577Operating expenses $ 30,814 $ 35,187$ - $ 66,001Selling, general and administrative expenses $ 6,207 $ 35,542$ - $ 41,749Depreciation and amortization $ 7,557 $ 13,037$ - $ 20,594Income from operations $ 55,469 $ 66,619$ - $ 122,088Three months ended March 31, 2021Sales and other revenues $ 173,442 $ 483,246 $ (132,125) $ 524,563Cost of products sold $ 132,532 $ 331,116 $ (132,125) $ 331,523Operating expenses $ 28,621 $ 32,132$ - $ 60,753Selling, general and administrative expenses $ 6,739 $ 38,814$ - $ 45,553Depreciation and amortization $ 7,305 $ 12,816$ - $ 20,121Income (loss) from operations $ (1,755) $ 68,368$ - $ 66,613(1) Rack Backconsists of our Petro-Canada Lubricants, Inc.("PCLI') base oil production activities, by-product sales to third parties and intra-segment base oil sales to Rack Forward. (2) Rack Forwardactivities include the purchase of base oils from Rack Backand the blending, packaging, marketing and distribution and sales of finished lubricants and specialty products to third parties. (3)Intra-segment sales of Rack Backproduced base oils to Rack Forwardare eliminated under the "Eliminations" column.
Results of operations – Quarters ended
Net income attributable to
HF Sinclairstockholders for the three months ended March 31, 2022was $160.0 million( $0.90per basic and diluted share), an $11.8 millionincrease from a net income of $148.2 million( $0.90per basic and diluted share) for the three months ended March 31, 2021. The increase in net income was principally driven by stronger product demand, which resulted in an increase in refinery gross margins and higher refined product sales volumes. Net income for the three months ended March 31, 2021was impacted by winter storm Uri, which increased natural gas costs across our refining system. Refinery gross margins for the three months ended March 31, 2022increased to $12.69per produced barrel sold from $8.00for the three months ended March 31, 2021. Sales and Other Revenues Sales and other revenues increased 113% from $3,504.3 millionfor the three months ended March 31, 2021to $7,458.8 millionfor the three months ended March 31, 2022principally due to the increase in sales prices and higher refined product sales volumes, in part due to the acquisition of the Puget Sound Refineryand the acquisition of Sinclair Oil. Sales and other revenues for the three months ended March 31, 2022and 2021 included $27.9 millionand $25.3 million, respectively, of HEP revenues attributable to pipeline and transportation services provided to unaffiliated parties. Additionally, sales and other revenues included $753.6 millionand $522.0 millionin unaffiliated revenues related to our Lubricants and Specialty Products segment for the three months ended March 31, 2022and 2021, respectively. Cost of Products Sold Total cost of products sold increased 135% from $2,760.3 millionfor the three months ended March 31, 2021to $6,493.5 millionfor the three months ended March 31, 2022principally due to higher crude oil costs and higher refined product sales volumes. During the first quarters of 2022 and 2021, we recognized a lower of cost or market inventory valuation adjustment benefits of $8.6 millionand $200.0 million, respectively. 46 -------------------------------------------------------------------------------- Table of Content Gross Refinery Margins Gross refinerymargin per produced barrel sold increased 59% from $8.00for the three months ended March 31, 2021to $12.69for the three months ended March 31, 2022. The increase was due to the effects of an increase in the average per barrel sold sales price during the current year quarter, partially offset by increased crude oil and feedstock prices. Gross refinery margin per barrel does not include the non-cash effects of lower of cost or market inventory valuation adjustments or depreciation and amortization. See "Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles" following Item 3 of Part I of this Form 10-Q for a reconciliation to the income statement of sale prices of products sold and cost of products purchased. Operating Expenses Operating expenses, exclusive of depreciation and amortization, increased 19% from $399.9 millionfor the three months ended March 31, 2021to $477.4 millionfor the three months ended March 31, 2022primarily due to the acquisition of the Puget Sound Refinery. Selling, General and Administrative Expenses Selling, general and administrative expenses increased 35% from $82.0 millionfor the three months ended March 31, 2021to $110.4 millionfor the three months ended March 31, 2022primarily due to higher professional services and legal costs incurred in connection with the Sinclair Transactions. See Note 2 "Acquisitions" in the Notes to Consolidated Financial Statements for additional information on this acquisition. Depreciation and Amortization Expenses Depreciation and amortization increased 17% from $124.1 millionfor the three months ended March 31, 2021to $144.6 millionfor the three months ended March 31, 2022. This increase was due principally to depreciation and amortization attributable to the acquisition of the Puget Sound Refineryand capitalized improvement projects. Interest Expense Interest expense was $34.9 millionfor the three months ended March 31, 2022compared to $38.4 millionfor the three months ended March 31, 2021. This decrease was primarily due to lower net losses related to our catalyst financing arrangements during the three months ended March 31, 2022as compared to the same period in the prior year.
For the three months ended
Gain on Tariff Settlement For the three months ended
March 31, 2021, we recorded a gain of $51.5 millionupon the settlement of a tariff rate case. See Note 14 "Contingencies" in the Notes to Consolidated Financial Statements for additional information on this case and settlement. Gain (Loss) on Foreign Currency Transactions Remeasurement adjustments resulting from the foreign currency conversion of the intercompany financing notes payable by PCLI net of mark-to-market valuations on foreign exchange forward contracts with banks which hedge the foreign currency exposure on these intercompany notes was a net gain of $0.1 millionand a net loss of $1.3 millionfor the three months ended March 31, 2022and 2021, respectively. For the three months ended March 31, 2022and 2021, gain (loss) on foreign currency transactions included losses of $6.4 millionand $6.7 million, respectively, on foreign exchange forward contracts (utilized as an economic hedge). Income Taxes For the three months ended March 31, 2022, we recorded an income tax expense of $21.3 millioncompared to a benefit of $28.3 millionfor the three months ended March 31, 2021. This increase was principally due to higher pre-tax income during the three months ended March 31, 2022compared to the same period of 2021. Our effective tax rates were 10.3% and (18.3)% for the three months ended March 31, 2022and 2021, respectively. The increase in the effective tax rate is principally due to the relationship between the pre-tax results and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes. The difference in the U.S.federal statutory rate and the effective tax rate for the three months ended March 31, 2022was primarily due to the impact of federal tax credits and the decrease in the state tax rate applied to our deferred tax assets and liabilities as a result of the SinclairTransactions. 47
-------------------------------------------------------------------------------- Table of Content LIQUIDITY AND CAPITAL RESOURCES HF Sinclair Credit Agreement On
April 27, 2022, after giving effect to the consummation of the exchange offers and the issuance of the HF SinclairSenior Notes (as defined below), HF Sinclairentered into a $1.65 billionsenior unsecured revolving credit facility maturing in April 2026(the "HF Sinclair Credit Agreement"). The HF SinclairCredit Agreement may be used for revolving credit loans and letters of credit from time to time and is available to fund general corporate purposes. The HF Sinclair Credit Agreement replaced the $1.35 billionsenior unsecured revolving credit facility of HollyFrontier(the "Terminated HFC Credit Agreement"), which was terminated on April 27, 2022. At March 31, 2022, HollyFrontierwas in compliance with all covenants, had no outstanding borrowings and had outstanding letters of credit totaling $2.3 millionunder the Terminated HFC Credit Agreement. HFC Bond Exchange On April 27, 2022, HF Sinclaircompleted its offers to exchange any and all outstanding HollyFrontier2.625% senior notes maturing 2023 (the " HollyFrontier2.625% Senior Notes"), 5.875% senior notes maturing 2026 (the " HollyFrontier5.875% Senior Notes") and 4.500% senior notes maturing 2030 (the " HollyFrontier4.500% Senior Notes" and, collectively, the " HollyFrontierSenior Notes") for 2.625% senior notes maturing 2023 (the " HF Sinclair2.625% Senior Notes"), 5.875% senior notes maturing 2026 (the " HF Sinclair5.875% Senior Notes") and 4.500% senior notes maturing 2030 (the " HF Sinclair4.500% Senior Notes" and, collectively, the " HF SinclairSenior Notes") to be issued by HF Sinclairand cash. Additionally, HF Sinclairsolicited consents to adopt certain amendments to the indenture governing the HollyFrontierSenior Notes.
Following settlement of the exchange offers and consent solicitations, the
Amount (as of
April Titleof Series of HF SinclairSenior Notes
(In thousands) 2.625% HF Sinclair Senior Notes maturing 2023 $ 290,348 5.875% HF Sinclair Senior Notes maturing 2026 $ 797,100 4.500% HF Sinclair Senior Notes maturing 2030 $ 325,034 The
HF SinclairSenior Notes are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness. Each series of HF SinclairSenior Notes has the same interest rate (including interest rate adjustment provisions, as applicable), interest payment dates, maturity date and redemption terms as the corresponding series of HollyFrontierSenior Notes. The HF SinclairSenior Notes were issued in exchange for the HollyFrontierSenior Notes pursuant to a private exchange offer exempt from registration under the Securities Act of 1933, as amended. In connection with the issuance of the HF SinclairSenior Notes, HF Sinclairagreed to use its commercially reasonable efforts to file (and have declared effective) a registration statement with respect to a registered offer to exchange the HF SinclairSenior Notes for substantially identical registered notes. HF Sinclairwill be obligated to pay additional interest if it does not complete the exchange offer on or prior to April 27, 2023, or if a shelf registration statement with respect to the HF SinclairSenior Notes (if required to be filed) is not declared effective by the dates indicated in the Registration Rights Agreement.
Following the settlement-delivery of the exchange offers and consent solicitations, as of
Amount (as of April 27, Title of Series of HollyFrontier Senior Notes 2022) (In thousands) 2.625% HollyFrontier Senior Notes maturing 2023 $ 59,652 5.875% HollyFrontier Senior Notes maturing 2026 $ 202,900 4.500% HollyFrontier Senior Notes maturing 2030 $ 74,966 In connection with the exchange offers and consent solicitations,
HollyFrontieramended the indenture governing the HollyFrontierSenior Notes to eliminate (i) substantially all of the restrictive covenants, (ii) certain of the events which may lead to an "Event of Default", (iii) the SECreporting covenant and (iv) with respect to the HollyFrontier2.625% Senior Notes and the HollyFrontier4.500% Senior Notes only, the offer to repurchase such senior notes upon certain change of control triggering events. 48
HF Sinclair Financing Arrangements Certain of our wholly owned subsidiaries entered into financing arrangements whereby such subsidiaries sold a portion of their precious metals catalyst to a financial institution and then leased back the precious metals catalyst in exchange for cash. The volume of the precious metals catalyst and the lease rate are fixed over the term of each lease, and the lease payments are recorded as interest expense. The current leases mature in one year or less. Upon maturity, we must either satisfy the obligation at fair market value or refinance to extend the maturity. HEP Credit Agreement HEP has a
$1.2 billionsenior secured revolving credit facility maturing in July 2025(the "HEP Credit Agreement") and is available to fund capital expenditures, investments, acquisitions, distribution payments, working capital and for general partnership purposes. It is also available to fund letters of credit up to a $50 millionsub-limit and has an accordion feature that allows HEP to increase the commitments under the HEP Credit Agreement up to a maximum amount of $1.7 billion. During the three months ended March 31, 2022, HEP had net borrowings of $301.5 millionunder the HEP Credit Agreement. At March 31, 2022, HEP was in compliance with all of its covenants, had outstanding borrowings of $1.1 billionand no outstanding letters of credit under the HEP Credit Agreement. On April 8, 2022, HEP and Holly Energy Finance Corp.issued $400 millionaggregate principal amount of 6.375% senior notes maturing April 2027(the "HEP 6.375% Senior Notes") in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The HEP 6.375% Senior Notes were issued at par for net proceeds of approximately $393 million, after deducting the initial purchasers' discounts and commissions and estimated offering expenses, are unsecured and impose certain restrictive covenants and other terms consistent with the HEP 5.0% Senior Notes described in Note 10 "Debt" in the Notes to Consolidated Financial Statements. The net proceeds from the offering of the HEP 6.375% Senior Notes were used to partially repay outstanding borrowings under the HEP Credit Agreement.
See note 10 “Debt” of the notes to the consolidated financial statements for more information on our debt instruments.
We believe our current cash and cash equivalents, along with future internally generated cash flow and funds available under our credit facilities, will provide sufficient resources to fund currently planned capital projects and our liquidity needs for the foreseeable future. We expect that, to the extent necessary, we can raise additional funds from time to time through equity or debt financings in the public and private capital markets. In addition, components of our long-term growth strategy include the optimization of existing units at our facilities and selective acquisition of complementary assets for our refining operations intended to increase earnings and cash flow. We also expect to use cash for payment of cash dividends, which are at the discretion of our Board of Directors, and, upon the expected completion of our renewables capital projects in the second quarter of 2022, for the repurchase of common stock under our share repurchase program. Our standalone (excluding HEP) liquidity was approximately
$1.9 billionat March 31, 2022, consisting of cash and cash equivalents of $577.3 millionand an undrawn $1.35 billioncredit facility. On April 27, 2022, we increased the size of the HF Sinclaircredit facility to $1.65 billion. We consider all highly-liquid instruments with a maturity of three months or less at the time of purchase to be cash equivalents. These primarily consist of investments in conservative, highly-rated instruments issued by financial institutions, government and corporate entities with strong credit standings and money market funds. Cash equivalents are stated at cost, which approximates market value. In November 2019, our Board of Directors approved a $1.0 billionshare repurchase program, which replaced all existing share repurchase programs, authorizing us to repurchase common stock in the open market or through privately negotiated transactions. The timing and amount of stock repurchases will depend on market conditions and corporate, regulatory and other relevant considerations. This program may be discontinued at any time by our Board of Directors. As of March 31, 2022, we had not repurchased common stock under this stock repurchase program, and we do not intend to repurchase common stock under this program until completion of our ongoing renewables capital projects. In addition, we are authorized by our Board of Directors to repurchase shares in an amount sufficient to offset shares issued under our compensation programs. 49 -------------------------------------------------------------------------------- Table of Content Cash Flows - Operating Activities Three Months Ended March 31, 2022Compared to Three Months Ended March 31, 2021Net cash flows provided by operating activities were $461.0 millionfor the three months ended March 31, 2022compared to $62.3 millionfor the three months ended March 31, 2021, an increase of $398.7 million. The increase in operating cash flows was primarily due to the increase in gross refinery margins, partially offset by higher operating expenses. Changes in working capital increased operating cash flows by $213.7 millionand $14.1 million, for the three months ended March 31, 2022and 2021, respectively. Changes in working capital items adjust for the timing of receipts and payments of actual cash.
Cash Flow – Investing Activities and Planned Capital Expenditures
Three Months Ended
March 31, 2022Compared to Three Months Ended March 31, 2021For the three months ended March 31, 2022, our net cash flows used for investing activities were $385.2 million. On March 14, 2022, we closed the SinclairTransactions and paid cash of $231.2 million. The remainder of the purchase consideration was funded with the issuance of HF Sinclaircommon stock and HEP common units. See Note 2 "Acquisitions" in the Notes to Consolidated Financial Statements for additional information on the Sinclair Transactions. Cash expenditures for properties, plants and equipment for the three months ended March 31, 2022were $158.3 millionprimarily due to expenditures related to our renewable diesel units. Cash expenditures for properties, plants and equipment include HEP capital expenditures of $14.1 millionfor the three months ended March 31, 2022. For the three months ended March 31, 2021our net cash flows used for investing activities were $147.1 million. Cash expenditures for properties, plants and equipment for the three months of ended March 31, 2021were $150.0 millionprimarily due to expenditures related to our renewable diesel units. Cash expenditures for properties, plants and equipment include HEP capital expenditures of $33.2 millionfor the three months ended March 31, 2021. HF Sinclair CorporationEach year our Board of Directors approves our annual capital budget which includes specific projects that management is authorized to undertake. Additionally, when conditions warrant or as new opportunities arise, additional projects may be approved. The funds appropriated for a particular capital project may be expended over a period of several years, depending on the time required to complete the project. Therefore, our planned capital expenditures for a given year consist of expenditures appropriated in that year's capital budget plus expenditures for projects appropriated in prior years which have not yet been completed. Refinery turnaround spending is amortized over the useful life of the turnaround. The refining industry is capital intensive and requires on-going investments to sustain our refining operations. This includes replacement of, or rebuilding, refinery units and components that extend the useful life. We also invest in projects that improve operational reliability and profitability via enhancements that improve refinery processing capabilities as well as production yield and flexibility. Our capital expenditures also include projects related to renewable diesel, environmental, health and safety compliance and include initiatives as a result of federal and state mandates. Our refinery operations and related emissions are highly regulated at both federal and state levels, and we invest in our facilities as needed to remain in compliance with these standards. Additionally, when faced with new emissions or fuels standards, we seek to execute projects that facilitate compliance and also improve the operating costs and / or yields of associated refining processes.
Each year the
Holly Logistic Services, L.L.C.board of directors approves HEP's annual capital budget, which specifies capital projects that HEP management is authorized to undertake. Additionally, at times when conditions warrant or as new opportunities arise, special projects may be approved. The funds allocated for a particular capital project may be expended over a period in excess of a year, depending on the time required to complete the project. Therefore, HEP's planned capital expenditures for a given year consist of expenditures approved for capital projects included in its current year capital budget as well as, in certain cases, expenditures approved for capital projects in capital budgets for prior years. In addition, HEP may spend funds periodically to perform capital upgrades or additions to its assets where a customer reimburses HEP for such costs. The upgrades or additions would generally benefit the customer over the remaining life of the related service agreements. 50 -------------------------------------------------------------------------------- Table of Content Expected capital and turnaround cash spending for 2022 is as follows. Expected Cash Spending
HF Sinclair Capital Expenditures
Lubricants and Specialty Products 45.0 60.0 Marketing 15.0 25.0 Corporate 90.0 110.0 Turnarounds and catalyst 110.0 150.0 Total HollyFrontier 750.0 925.0 HEP Maintenance 20.0 25.0 Expansion and joint venture investment 5.0 10.0 Refining unit turnarounds 30.0 40.0 Total HEP 55.0 75.0 Total
$ 805.0 $ 1,000.0
Cash flow – Financing activities
Three Months Ended
March 31, 2022Compared to Three Months Ended March 31, 2021For the three months ended March 31, 2022, our net cash flows provided by financing activities were $281.4 million. During the three months ended March 31, 2022, HEP had net borrowings of $301.5 millionunder the HEP Credit Agreement and paid distributions of $17.0 millionto noncontrolling interests. For the three months ended March 31, 2021, our net cash flows used for financing activities were $89.6 million. During the three months ended March 31, 2021, we paid $57.7 millionin dividends. Also during the period, HEP had net repayments of $17.5 millionunder the HEP Credit Agreement and paid distributions of $20.0 millionto noncontrolling interests. For the three months ended March 31, 2021, HEP received contributions from noncontrolling interests of $6.3 million.
Contractual obligations and commitments
There have been no material changes in our long-term contractual obligations during the three months ended
Payments Due by Period Contractual Obligations and Commitments Total 2022 2023 & 2024 2025 & 2026 Thereafter (In thousands) Supply agreements (1)
$ 479,984 $ 479,984$ - $ - $ - Transportation agreements (2) 447,769 32,032 85,418 85,418 244,901 Total $ 927,753 $ 512,016 $ 85,418 $ 85,418 $ 244,901(1)We have long-term supply agreements to secure certain quantities of crude oil used in the production process at market prices. We have estimated future payments under these fixed-quantity agreements expiring in 2022 using current market prices. (2)Consists of contractual obligations under agreements with third parties for the transportation of crude oil to our refineries under contracts expiring between 2029 and 2034.
During the three months ended
March 31, 2022, HEP had net borrowings of $301.5 millionresulting in $1,141.5 millionof outstanding borrowings under the HEP Credit Agreement at March 31, 2022.
Table of Contents There were no other material changes to HEP’s long-term contractual obligations during this period.
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in HollyFrontier'sAnnual Report on Form 10-K for the year ended December 31, 2021. Certain critical accounting policies that materially affect the amounts recorded in our consolidated financial statements include the use of the last-in, first-out ("LIFO") method of valuing certain inventories, assessing the possible impairment of certain long-lived assets and goodwill, and assessing contingent liabilities for probable losses. Inventory Valuation: Inventories related to our refining operations are stated at the lower of cost, using the LIFO method for crude oil and unfinished and finished refined products, or market. In periods of rapidly declining prices, LIFO inventories may have to be written down to market value due to the higher costs assigned to LIFO layers in prior periods. In addition, the use of the LIFO inventory method may result in increases or decreases to cost of sales in years that inventory volumes decline as the result of charging cost of sales with LIFO inventory costs generated in prior periods. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels at that time. Accordingly, interim LIFO calculations are based on management's estimates of expected year-end inventory levels and are subject to the final year-end LIFO inventory valuation. Our renewables inventories that are valued at the lower of LIFO cost or market reflect a valuation reserve of $0.2 millionand $8.7 millionat March 31, 2022and December 31, 2021, respectively. A new market reserve of $0.2 millionas of March 31, 2022was based on market conditions and prices at that time. The effect of the change in the lower of cost or market reserve was a decrease to cost of products sold totaling $8.6 millionfor the three months ended March 31, 2022. Inventories consisting of process chemicals, materials and maintenance supplies and RINs are stated at the lower of weighted-average cost or net realizable value. Inventories of our Petro-Canada Lubricantsand Sonneborn businesses are stated at the lower of cost, using the first-in, first-out method, or net realizable value.
Valuation of Business Combinations We recognize and measure the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date. Any excess or surplus of the purchase consideration when compared to the fair value of the net tangible assets acquired, if any, is recorded as goodwill or gain from a bargain purchase. The fair value of assets and liabilities as of the acquisition date are often estimated using a combination of approaches, including the income approach, which requires us to project future cash flows and apply an appropriate discount rate; the cost approach, which requires estimates of replacement costs and depreciation and obsolescence estimates; and the market approach which uses market data and adjusts for entity-specific differences. We use all available information to make these fair value determinations and engage third-party consultants for valuation assistance. The estimates used in determining fair values are based on assumptions believed to be reasonable but which are inherently uncertain. Accordingly, actual results may differ materially from the projected results used to determine fair value.
We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters. 52 -------------------------------------------------------------------------------- Table of Content RISK MANAGEMENT We use certain strategies to reduce some commodity price and operational risks. We do not attempt to eliminate all market risk exposures when we believe that the exposure relating to such risk would not be significant to our future earnings, financial position, capital resources or liquidity or that the cost of eliminating the exposure would outweigh the benefit. Commodity Price Risk Management Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in crude oil and refined products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into derivative contracts in the form of commodity price swaps, forward purchase and sales and futures contracts to mitigate price exposure with respect to our inventory positions, natural gas purchases, sales prices of refined products and crude oil costs. Foreign Currency Risk Management We are exposed to market risk related to the volatility in foreign currency exchange rates. We periodically enter into derivative contracts in the form of foreign exchange forward contracts to mitigate the exposure associated with fluctuations on intercompany notes with our foreign subsidiaries that are not denominated in the
Notional Contract Volumes by Year of Maturity Derivative Instrument Total Outstanding Notional 2022 2023 Unit of Measure NYMEX futures (WTI) - short 2,120,000 2,120,000 - Barrels Forward gasoline and diesel contracts - long 805,000 805,000 - Barrels Foreign currency forward contracts 450,707,774 340,773,326 109,934,448 U.S. dollar Forward commodity contracts (platinum) (1) 38,723 3,800 34,923 Troy ounces (1)Represents an embedded derivative within our catalyst financing arrangements, which may be refinanced or require repayment under certain conditions. See Note 10 "Debt" in the Notes to Consolidated Financial Statements for additional information on these financing arrangements.
The following sensitivity analysis provides the hypothetical effects of market price movements on the commodities covered by our derivative contracts:
Change in fair value in March
Commodity-based Derivative Contracts 2022 2021
(000s) Hypothetical 10% change in underlying commodity prices
Interest Rate Risk Management The market risk inherent in our fixed-rate debt is the potential change arising from increases or decreases in interest rates as discussed below. For the fixed rate
HF SinclairSenior Notes and HEP Senior Notes, changes in interest rates will generally affect fair value of the debt, but not earnings or cash flows. The outstanding principal, estimated fair value and estimated change in fair value (assuming a hypothetical 10% change in the yield-to-maturity rates) for this debt as of March 31, 2022is presented below: Estimated Outstanding Estimated Change in Principal Fair Value Fair Value (In thousands) HollyFrontier Senior Notes $ 1,750,000 $ 1,783,443 $ 32,278HEP Senior Notes $ 500,000 $ 474,605 $ 14,47553
Table of Content For the variable rate HEP Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At
March 31, 2022, outstanding borrowings under the HEP Credit Agreement were $1.1 billion. A hypothetical 10% change in interest rates applicable to the HEP Credit Agreement would not materially affect cash flows. Our operations are subject to hazards of petroleum processing operations, including but not limited to fire, explosion, cyberattacks and weather-related perils. We maintain various insurance coverages, including property damage, business interruption and cyber insurance, subject to certain deductibles and insurance policy terms and conditions. We are not fully insured against certain risks because such risks are not fully insurable, coverage is unavailable, or premium costs, in our judgment, do not justify such expenditures. Financial information is reviewed on the counterparties in order to review and monitor their financial stability and assess their ongoing ability to honor their commitments under the derivative contracts. We have not experienced, nor do we expect to experience, any difficulty in the counterparties honoring their commitments. We have a risk management oversight committee consisting of members from our senior management. This committee oversees our risk enterprise program, monitors our risk environment and provides direction for activities to mitigate identified risks that may adversely affect the achievement of our goals.
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